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What Exactly Is Equity?

When swimming through the sea of real estate terminology, you've likely heard “equity” thrown about more than once. But what is equity, and why is it important to you?

Simply put, equity is the cash value of your property over and above what is owed on it, including mortgages, liens, and judgments. Even simpler: equity is the value of the home minus the amount of any loans on the home. The amount of equity in a home almost always grows over the years, although regional economic slumps or overbuilding might result in a temporary dip in prices.

So, as you pay your home loan down and own more of your property, you're building equity. But there are other ways to easily build equity as well. If the market in your area is in a period of rising prices, any increase in price due to market fluctuations is an increase in your equity. If you make improvements to your home and increase your market value, you're building what’s called “sweat equity.”

The good thing is that you can borrow against the equity that builds up in your home and use it for any number of reasons, including home improvements and to pay for college costs. It’s also a source of income for you once the home is sold.

Equity is what makes seller financing possible. If you have money to spare, you can always lend some to the buyer and collect interest on it.

As a Member of the Top 5 in Real Estate Network®, I have a wealth of real estate and homeownership information that may be of help to you. Feel free to contact me any time to learn more about this important information, and be sure to forward this article on to any friends or family that may be interested as well.